A bipartisan small business fix

HR 2274, the Small Business Mergers, Acquisitions, Sales, and Brokerage Simplification Act of 2013 is an excellent bipartisan bill, one whose time has come, and Congress should get it done before the end of the year.  It’s not a sexy bill, not one that prime-time TV will be talking about, and not one that will evoke a question in the next presidential debates, but it’s a bill that does have teeth and it is a serious and substantive piece of small business legislation.

HR 2274 would simplify and reduce the costs of federal securities regulation in privately negotiated mergers and acquisitions. The bill would apply to M&A transactions involving the sale of private companies with earnings of less than $25 million (earnings are defined as EBITDA which stands for Earnings Before Interest, Taxes and Depreciation) and revenue of less than $250 million to active buyers. 

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The key words here are ‘private companies’ and ‘active buyers.’  It would direct the SEC to create a simplified system of registration through a public notice filing that would be available on the SEC’s website, and it would require appropriate client disclosures from the M&A broker.  H.R. 2274 would also direct the SEC to tailor its rules governing M&A brokers in light of the limited scope of their activities, the nature of privately negotiated M&A transactions, and the active involvement of buyers and sellers in those transactions.

The current one-size-fits-all law treats the sale of a small, privately held business the same as a Wall Street investment banker selling securities of a public company.  For instance, a sale of a local candy store with seller financing can technically be considered a securities transaction requiring broker-dealer registration with the SEC.

There is a big difference between the sale of a small business to a buyer who will be active in managing the business after the sale and the sale to passive investors of securities of a publicly-traded company on the New York Stock Exchange. 

Current law does not distinguish between these two activities – and it should.  It’s time for Washington to define the differences.

HR 2274 does just that. 

2274 would help small business owners reap the benefits of their entrepreneurial efforts of starting, building, and running a job creating private enterprise. For many of these owners, sale of their business is their retirement nest egg.   2274 also helps entrepreneurs and managers buy an existing business and build it up to the next level.

Compliance costs for small businesses associated with these current regulations can easily exceed $75,000 per year; costs that could result in either non-compliance or expenses passed on to the small business owners.

2274 would lower costs, increase compliance, and better serve buyers and sellers of small businesses.  It is a bill that promotes economic development, job creation, and provides important, immediate, and substantial relief of regulatory burdens on small business professionals in the critical M&A industry. 

In this red hot partisan atmosphere, perhaps Congress can take a day to identify and pass some truly bipartisan small business bills.  Such an act would show America that, while major philosophical differences and contentious proposals are being hammered out on high-profile issues on Capitol Hill, at the same time, positive initiatives can still being considered and passed in a bipartisan fashion; laws that can make a real and immediate difference in the lives of many Americans.

It is a smart bill and one that deserves consideration through a straight-up vote or through inclusion in any other jurisdictional bills moving through Congress that address small business, jobs or regulatory reform.

We encourage Congress to look at 2274 as a perfect example of where Congress can come together in a bipartisan effort to show that things are still getting done for the American small business community in Washington.

Nall is the president of The Alliance of Merger & Acquisition Advisors® (amaaonline.org) which is the international organization serving the the middle market M&A industry.